The increase in savings in Australia and trend to debt reduction, coupled with improving housing market and retail sales figures must have allayed the fears of the Reserve Bank today.

As predicted by economists, The RBA has kept its cash rate unchanged this month at 3.5%.

The Australian reports today:

In a statement accompanying the rates decision, RBA governor Glenn Stevens said: “With inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate”.

He said that global economic growth had softened in recent months and that commodity prices had declined. Australia’s terms of trade had peaked nearly a year ago, he added.

But Australia’s labour market showed moderate employment growth, despite job cuts in some sectors, he said. Inflation also remained low, although the carbon tax would affect prices over the next couple of quarters, Mr Stevens said. A key inflation index released yesterday, the first to reflect the introduction of the carbon tax on July 1, showed that consumer prices rose only 1.2 per cent over the year to July…

Economists expect one or two further interest rate cuts this year, not only to underpin growth at home but also to help reduce the value of the Australian dollar.

The cuts are predicted for later in the year, which if made, could further inspire and accomodate more buyers into the housing market, and set more people up for finance approval.

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